Dr Pepper: Prognosis Negative

There are two segments of the beverage industry that are particularly vulnerable right now: the North American market and the market for soda pop.

Dr Pepper Snapple Group is highly exposed to both low-demand segments, and its problems don't end there.

On Thursday, the company reported that profits had fallen 31 percent in its third quarter—its first full quarter as a standalone business after it was spun off in May from Cadbury PLC.

About 80 percent of Dr Pepper's sales volume is made up of soft drinks, including Dr Pepper and 7 Up. And most of its overall sales are in the United States. That's a deadly combination given that U.S. soft-drink sales had been falling fast even before the economy started to tank.

And the company doesn't see a turnaround happening any time soon. Along with its dismal results, it cut its full-year forecast, with CEO Larry Young saying this is "one of the toughest environments the beverage industry has faced in many years."

And the bad news continues: Dr Pepper lost the distribution rights to Glaceau, maker of the silly-but-profitable "enhanced water" product Vitaminwater. Coca-Cola bought Glaceau's parent, Energy Drinks, earlier this year and has taken over distribution.

It also lost distribution rights to Hansen Natural's Monster Energy drinks. Here again, Coke took over the account. Meanwhile, demand is sagging for the company's premium drinks, with sales of its Snapple brand falling by 8 percent.

And all the while, of course, Dr Pepper's input costs were rising. There may be some cost relief coming, but until the company expands its product mix and moves deeper into international markets, that won't be enough to change the profit picture.